Almost two-fifths of US life insurers' reserves were ceded to Bermuda-based reinsurers by the end of 2024 — up from 26% in 2020, according to ALIRT Research. The sharp rise reflects a broader move by US life companies, including private-equity and asset-manager-backed firms, to use offshore and affiliated reinsurance to boost capital efficiency and manage tax outcomes.

Offshore reinsurance has surged. Data compiled by ALIRT Research shows a rapid expansion in the volume of reserves ceded to Bermuda. By the end of 2024, 38% of US life insurers' reserves were held by Bermuda-based reinsurers, up from 26% in 2020. The jump underlines a sharp reallocation of general account risk away from onshore balance sheets toward overseas reinsurers. Insurers use offshore reinsurance for several reasons. AM Best notes that some arrangements — particularly those involving affiliated reinsurers — are structured to improve capital efficiency and, in some cases, to obtain tax advantages. For many large firms, ceding reserves abroad has become a standard tool to manage statutory capital and regulatory requirements. More annuities, more concentrated exposure AM Best says assets supporting individual annuity products now account for more than 36% of total industry reserves, up from about 32% before the 2008 financial crisis. That shift reflects a long-term industry move away from defined-benefit pension models toward products that place investment risk in insurers' general accounts. Key points on concentration and credit quality: - Annuity reserves are increasingly concentrated in carriers with lower credit ratings on a weighted basis (roughly two notches lower than historically, according to AM Best). - About one-third of total annuity reserves are now held by 95 insurers whose ratings have declined since 2007. - Publicly listed insurers hold nearly half of those concentrated reserves, while privately owned companies have experienced the steepest average downgrades. AM Best also points to the rapid growth of private equity- and asset manager-backed insurers over the past five years, driven by strong annuity demand. Product choices and asset strategies Insurers have leaned on product designs and asset allocations to capture yield and manage duration. AM Best highlights multi-year guaranteed annuities (MYGAs) as a product that helped carriers lock in customer rates while matching long-duration liabilities with higher-yielding assets. Private-equity and asset-manager-backed firms have used higher-yielding private credit investments to offer more competitive crediting rates to annuity buyers. Those strategies have helped those firms gain market share but also concentrate exposure to less liquid asset classes and to counterparties outside traditional insurance markets. Risk transfer meets weaker counterparties AM Best lists several trends that together have weighed on balance-sheet strength across the sector since 2007. These include: - increased reliance on reinsurance - a decline in the quality of reinsurance counterparties - reduced financial flexibility and pressure on internally generated capital - weakening asset quality and challenges in asset-liability management When insurers cede large portions of reserves offshore, the solvency of the reinsurer becomes critical to the ultimate safety of policyholder liabilities. AM Best warns that cross-border reinsurance structures — especially those that use affiliated reinsurers — can add legal and operational complexity and make it harder to judge counterparty strength and recovery prospects. Competition, pricing and capital pressure AM Best says the industry could face slower growth ahead as these trends place pressure on pricing, capital and risk-bearing capacity.

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By the end of 2024, 38% of US life insurers' reserves were ceded to Bermuda-based reinsurers, up from 26% in 2020 — a shift that raises fresh questions about reinsurer solvency and concentrated annuity exposures.

This article was created with AI assistance.